Ethanol's Challenging Times

RFA President Dinneen: RFS to Have its Day in Court

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen delivered his state of the ethanol industry speech at the National Ethanol Conference in New Orleans on Tuesday. (DTN photo by Todd Neeley)

NEW ORLEANS (DTN) -- The United States ethanol industry will continue to look for ways to expand markets despite tight and even negative profit margins while also challenging the U.S. Environmental Protection Agency in court on its implementation of the latest Renewable Fuel Standard volumes last November.

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said during his state of the industry speech at the National Ethanol Conference in New Orleans on Tuesday that while an oil "glut" is causing oil prices to fall and jobs in fossil fuels to be lost, the ethanol industry turned out record production in 2015 and added jobs.

Though falling crude prices have contributed to lower ethanol demand and prices, Dinneen said the industry continues to be important to the communities it serves.

"Thus, as I take to the podium this year -- a time when margins are slim, the din from our detractors deafening, and the policy framework for biofuels threatened again by an Environmental Protection Agency that ignores the law," Dinneen said.

EPA announced RFS volumes the agency says will push through the blend wall -- where ethanol production exceeds the available market. The ethanol industry has maintained EPA's reasons for cutting biofuels volumes below statute are not valid.

The U.S. ethanol industry produced a record 14.7 billion gallons in 2015, saw record blending demand of 13.75 billion gallons and record dried distillers grain feed production of 40 million metric tons.

"Those aren't the stats of an industry in retreat; that's an industry confident, defiant and prepared to weather any storm," Dinneen said.

The ethanol industry added $44 billion to the nation's gross domestic product and paid $10 billion in taxes in 2015, he said. That contributed to an increase in household income by $24 billion. The U.S. ethanol industry spent $25 billion on raw materials, other inputs, and other goods and services, Dinneen said.

"Margins may be tight, but you remain committed to your communities and are making an immeasurable difference in the lives of your neighbors and the pocketbooks of all Americans," he said. "Your fuel is renewable, and so are the jobs you require, the investment you've made and the purchases you make every day, no matter the economic climate.

"Contrast that with the boom-and-bust cycles of oil extraction that swing wildly, leaving communities withering on the abandoned hopes of a shuttered rig."

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Dinneen said the rig count for the last week of January was 498 -- the lowest since March 2010 and a 70% drop from the peak of 1,609 in October 2014. The oil and gas sector cut some 18,000 jobs in 2015 as profits fell.

"Faced with the same market pressures, the U.S. ethanol industry increased direct employment by some 2,000 jobs, according to one economic analysis, invested in new technologies, and worked to expand distribution infrastructure," Dinneen said.

"Tell me again why we shouldn't be doing everything possible to maximize renewable energy resources like ethanol as opposed to imposing unnecessary and discriminatory regulatory barriers that prevent consumers from having access to higher ethanol blends."

Despite the greenhouse gas benefits of ethanol compared to fossil fuels, he said the federal government decided to "adopt the narrative of the oil industry" with regard to the Renewable Fuel Standard by limiting the amount of corn ethanol used in the program "under the misplaced premise that there is neither the consumer demand nor infrastructure to accommodate higher blends of renewable fuel.

"To implement their vision of the marketplace, EPA grossly misread the general waiver provisions of the law, conflating supply and demand, and deliberately ignoring 1.8 billion surplus RIN (renewable identification numbers) credits that represent an incredibly important component of available supply.

"The real tragedy of EPA's action is that it castrates the market mechanism designed by Congress to motivate investments in both new advanced biofuel technology and the infrastructure needed to provide consumers with cost competitive choices at the pump."

Dinneen said EPA's own words from the recently updated final RFS run contrary to the reasons for the original adoption of the law.

The rule states, "We do not believe the statute should be interpreted to require that refiners and importers change the nature of their businesses so as to comply with RFS requirements, as this would be a far-reaching result that Congress can be expected to have clearly specified if it was intended."

Dinneen said the RFS was intended to force the oil industry to provide a marketplace for biofuels.

"The whole point of the RFS was to change the way refiners do business," he said. "Congress was directing refiners to change the nature of their business by requiring them to use steadily increasing volumes of renewable fuels -- something they otherwise would not do because it is not in their business model. How could EPA not understand this?"

The RFA has petitioned a federal court to review the final RFS, and Dinneen said the industry looks forward to its day in court.

"We look forward to testing EPA's vision of the statute and congressional intent in court," he said. "In the meanwhile, it is critical the industry look toward the future. Simply put, we need to grow demand.

"Clearly, we need to further develop the market for exports."

In 2015, the U.S. ethanol industry exported 836 million gallons with a value of $1.78 billion and representing about 6% of domestic production.

"Eight-hundred and thirty-six million gallons is identical to 2014's volume and tied for the second-highest total on record," Dinneen said. "We exported to more than 75 countries across the globe with Canada and Brazil leading the way. But China imported more than 70 million gallons last year, becoming our fourth largest export market and leading an Asian market that has surged more than 1,515% since 2012."

Conversely, ethanol imports into the United States were about 93 million gallons last year -- or the third lowest annual total in the past 10 years. That represents less than 1% of ethanol consumption in the United States.

"I know these are challenging times," he said. "Margins are tight. The political discourse is frustratingly ill informed and negative. The relentless advertising by the API (American Petroleum Institute) is more than annoying. The battles on Capitol Hill are tiring. EPA's hostility toward biofuels doesn't make sense. Having to battle for every new blender pump and FFV seems like a never-ending effort.

"But take solace in the knowledge that Americans across all demographics continue to support ethanol and the RFS specifically... Take a moment every day to cast your eye upon the communities that your plants have sustained and revitalized. And never ever forget that you are part of something far more important than a balance sheet."

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Todd Neeley

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